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So much for safe havens: The South African Rand has fallen 8% this year, hitting a three-year low early last week. Violent unrest at the country's mines has rippled through the country, paralyzing the mining sector and sending the price of metals higher, not to mention hitting the economy while it was down and tarnishing the country's image.

In recent years, investors had flocked to South Africa, lured by rich bond yields, an array of companies with strong corporate governance, and some insulation from global economic woes (after all, it is one of the world's major gold exporters). But that may have masked troubles brewing beneath the surface, from deep inequality and an unemployment rate above 25% to spates of violence in the informal sectors of the country and twin fiscal and trade deficits. "We had some shaky hands," says Viktor Szabo, a portfolio manager on Aberdeen's emerging-market debt team overseeing almost $9 billion. He thinks the currency is pricing in more risk than is warranted.

The jitters are understandable. The illegal wildcat strikes that started in the platinum industry spread to gold miners, then to truckers, leaving behind a death toll of more than 50. While the platinum mining and trucker strikers accepted a deal, gold miners rejected an offer from the industry, dashing hopes for a quick resolution. Analysts worry that continued unrest could jeopardize the authority of some of the country's institutions that have helped maintain stability. To make matters worse, an internal leadership vote for the ruling African National Congress is just months away, opening the door to political pandering.

Although retail inflows into South Africa equity funds have slowed recently, money managers' flows have held up relatively well until now, according to EPFR Global.

Political risk has undeniably risen, and the rand is evidence. If it weren't for the strong inflows related to South Africa's inclusion this month in the Citigroup World Emerging Market Bond Index, the currency's decline might have been even steeper. As it is, strategists see further weakness. "You can be the greatest stock picker in the world and get cut off at the knees by currency depreciation," says Alexander Muromcew, manager of the $618 million
TIAA-CREF Emerging Markets Equity
fund (TEMRX).

While Muromcew says he may cut his exposure to the country, he says companies like
Naspers
(NPSNY), an Internet and media firm with stakes in companies like China's
Tencent Holdings
(TCEHY), is minimally impacted by the unrest and currency move since many of its holdings are overseas. Retailers, however, are much more vulnerable. Not only have they done well this year, they have also been popular among foreign investors, which could open them to a selloff if sentiment worsens. Plus, with mining firms cutting jobs in a country already plagued by high unemployment, consumer demand could take a hit.
Shoprite Holdings
(SRHGY), which has supermarkets throughout the continent and is a popular play on the rest of Africa, may hold up better.

Oliver Bell, who runs the $150 million
T. Rowe Price Africa & Middle East
fund (TRAMX), says he is considering reducing exposure to retailers and adding to mining companies, noting that production cuts and a weaker currency may help their prospects. But the next couple of weeks are crucial, as investors decide whether the situation is about to be contained and offer a bargain-shopping opportunity, or about to get worse. "Nothing seems broken—yet," Bell says.